Stocks of the Week

The idea of supplying customers with recommendations based on prior shopping habits isn't all that new. If you've signed on for service with Blockbuster or Netflix, you know about the movie recommendations they hook you up with. (Mine right now include Planes, Trains, and Automobiles and La Femme Nikita -- does that say something about me?) Shoppers on Amazon.com get a similar slew of suggestions based on their previous purchases.

Investing in stocks may not exactly be comparable to renting a movie or buying a book on Amazon, but with thousands of stocks out there, finding new ideas can often be overwhelming. To help grease the ol' mental machinery, The Motley Fool's CAPS service recently started providing players with daily stock recommendations.

It works like this: CAPS members create a portfolio by rating some of their favorite -- and least favorite -- stocks. The super-secret stock-of-the-day algorithm -- which I've heard is run by a pack of Ewoks using a computer twice as powerful as BlueGene and uses calculations so complex that they have literally set lesser computers on fire -- is then run. It then starts churning out highly rated stocks for each player based largely on each one's prior selections and the current position of the Earth's rotation. To give you a sampling of the kinds of ideas that CAPS is doling out, here are the five recommendations the CAPS supercomputer spit out for me last week.

Day

Stock

Market Cap

CAPS Rating (Out of 5)

Monday

Universal Insurance Holdings (AMEX: UVE  )

$224 million

****

Tuesday

Travelers Companies (NYSE: TRV  )

$34.5 billion

****

Wednesday

CNA Surety (NYSE: SUR  )

$809 million

*****

Thursday

Amerisafe (Nasdaq: AMSF  )

$353 million

*****

Friday

Hanover Insurance Group (NYSE: THG  )

$2.4 billion

*****

Data from Motley Fool CAPS as of July 20.

As smart as the CAPS Stock of the Day algorithm may be, it's still just an algorithm, so be sure to look before you leap on any of its suggestions. With that in mind, I thought I'd kick you off with a few thoughts on some of these names.

The interest in insurance
If you're familiar with the insurance industry, you may notice that all five of my Stock of the Day recommendations are players in various areas of insurance. This isn't all that surprising, given the number of top insurance players such as Inside Value/Stock Advisor favorite Berkshire Hathaway and XL Capital that I have stacked in my CAPS portfolio. It's likewise understandable given the popularity of insurance names on CAPS.

Through its Tags feature, CAPS tracks both popularity and performance of various industries and geographies. The Insurance and Reinsurance tag -- which includes Berkshire, Universal Insurance, and Stock Advisor pick Montpelier Re (NYSE: MRH  ) -- is one of only nine tags with an average stock rating of five stars. The tags for Casualty Insurance, Property & Casualty Insurance, and Bermuda (where insurers such as XL and Montpelier are based) aren't far behind, with a four-star average rating.

Though Hanover Insurance Group has attracted only 18 ratings from the Fools on CAPS, all of them believe the company will outperform the S&P. Citigroup and Lehman Brothers, two highly rated Wall Street players on CAPS, have both given Hanover the green thumbs-up as well.

One of the Hanover bulls, who goes by the name refreund82, shares:

I work here and I can truly say I'm impressed with the way this company is being run. The CEO, Fred Eppinger, is amazing and has had the same goals since he first arrived nearly 5 years ago. I foresee [Hanover Insurance] becoming a major insurance player in the next 2-3 years.

Off the CAPS reservation, value-oriented asset manager Hotchkis and Wiley has also gotten behind Hanover and currently owns more than 14% of the outstanding shares. The firm currently manages more than $36 billion in mutual fund assets and also owns significant stakes in fellow insurers Unum Group, Genworth Financial, Travelers Companies, and XL Capital.

Now for the real question: Are you getting your own CAPS Stock of the Day selections yet? If not, what are you waiting for? CAPS is free, and getting your Stock of the Day picks is much more fun than having me get California's Governator to track you down and give you a wedgie. And don't think I won't do it.

More CAPS Foolishness:

Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. Netflix and Amazon are Stock Advisor recommendations. Matt tried to give The Fool's disclosure policy a wedgie but was overpowered by its incredible might. Don't worry -- he learned his lesson.


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